Banks asked to impose 25% margin on LCs for non-essential items

The Bangladesh Bank today instructed banks to impose at least 25 per cent margin on the opening of letter of credit for non-essential consumer items in a bid to curb the escalated import payments.

This means importers have to deposit at least 25 per cent of their total imported payments while opening LCs.

The central bank said that baby food, fuel oil, life-saving drugs and products for farm, export and local industrial sectors would be excluded from the instructions.

The banking regulator has taken the decision as part of its efforts to run the monetary and credit programme properly given the ongoing global state of affair, according to a BB notice.

Banks have been asked to implement the instruction with immediate effect.

Economists and analysts have recently suggested the central bank to discourage imports in order to keep the country's foreign exchange reserves stable.

Imports stood at $54.37 billion in the first eight months of 2021-22 fiscal year, an increase of 46.7 per cent year-on-year, according to data from the BB.

Between July and February, the trade deficit, which occurs when the value of imports exceeds the value of exports, totalled $22.30 billion in contrast to $12.35 billion during the same period a year ago.

The widening of the trade gap has intensified pressure on the exchange rate of the taka against the US dollar, which will ultimately reduce the foreign exchange reserves as well.

The foreign exchange reserves, which surpassed $48 billion in August last year, declined to $44.24 billion on April 6.